Watson Company has a subsidiary in the country of Alonza where the local currenc

Question

Watson Company has a subsidiary in the country of Alonza where the local currency unit is the kamel (KM) On December 31, 2014, the subsidiary has the following balance sheet: Cash Inventory Land Building Accumulated depreciation KM 10,500 Notes payable (due 2016) KM 21,000 25,000 12,500 14,500 Common stock 6,000 Retained earnings 55,000 (27,500) KM 58,500 KM 58,500 The subsidiary acquired the inventory on August 1, 2014, and the land and buildings in 2000. It issued the common stock in 1998. During 2015, the following transactions took place 2015 Feb. 1 May 1 June 1 Aug. 1 Sept.1 Oct. 1 Nov. 1 Dec. 1 Dec. 31 Paid 9,500 KM on the note payable Sold entire inventory for 23,000 KM on account. Sold land for 7.400 KM cash Collected all accounts receivable Signed long-term note to receive 10,500 KM cash. Bought inventory for 13,500 KM cash Bought land for 6,000 KM on account. Declared and paid 3,600 KM cash dividend to parent. Recorded depreciation for the entire year of 2,750 KM

Explanation / Answer

Particulars Amount (KM) Exchange rate (KM) Net asset balance 1/1          31,000 X                     0.32            9,920 Increase in Net assets iincome): Sold Inventory at a profit 5/1            8,500 X                     0.34            2,890 Sold land at a profit 6/1            1,400 X                     0.35                490 Decrease in Net assets: Dividend paid 12/1           -3,600 X                     0.41           -1,476 Depreciation recorded           -2,750 X                     0.38           -1,045 Net asset balance 12/31          34,550          10,779 Less: Net asset balance 12/31 at current exchange rate          34,550 X                     0.44          15,202 Translation adjustment-positive           -4,423 Working notes: Net asset balance 1/1 Cash          10,500 Inventory          14,500 Land            6,000          31,000 Sold Inventory at a profit 5/1 Selling price          23,000 Cost          14,500 Profit            8,500 Sold land at a profit 6/1 Selling price            7,400 Cost            6,000 Profit            1,400 Particulars Amount (KM) Exchange rate (KM) Beginning Net Monetary Liability Position        -10,500 X                     0.32           -3,360 Increases in monetary assets: Sold Inventory 5/1          23,000 X                     0.34            7,820 Sold land 6/1            7,400 X                     0.35            2,590 Decrease in monetary assets: Bought inventory 10/1        -13,500 X                     0.39           -5,265 Bought land 12/1           -6,000 X                     0.40           -2,400 Dividend paid 12/1           -3,600 X                     0.41           -1,476 Ending Net monetary liability position           -3,200           -2,091 Less: Ending Net monetary liability position at current exchange rate           -3,200                     0.44           -1,408 Remeasurement Gain              -683 Working notes: Beginning Net Monetary Note Payable          21,000 Less: Cash          10,500 Liability Position          10,500

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